Volatility Remains an Intraday Staple

In the morning notes I asked the question, What does the week have in store for traders and investors? More of the same is what we experienced to start the week! The index gained more than 1% intraday only to watch it disappear into the last hour of trading… and closed up 0.8%. The same is volatility from the view their is uncertainty and the sellers are not going to go away very easily. The buyers showed some resilience today. Below is a chart of the S&P 500 index and it shows very clearly today’s volatility intraday.

SP500

This chart also shows why you will go crazy attempting to trade this type of market environment. First, consider the index is oversold and this is a trade opportunity on the bounce off support moving forward. Even it today was the beginning of that trade with an entry at 1821, the volatility intraday would keep most traders from keeping the trade on as they would likely get stopped out of the position. Adding leverage to the trade with SSO or SPXL only magnifies the volatility/swings up or down. Sometime the best trade is no trade and just letting the trend develop along with the trade.

Earnings have not been overtly negative as Citigroup posted better than expected numbers which pushed the stock up more than 4% early, and closed up 4.3% on the day. That was good news for the banks and the financial sector was up 0.8% for the day. Banks (KBE) gained 1.3% early, but gave up all but 0.4% on the day. No confidence in the short term rallies and there in lies the issue for financials… confidence. Earnings reports are going to plentiful this week and they will have an impact good or bad. Schwab, Coke, Johnson & Johnson and Northern Trust are prior to the open and Yahoo and Intel after the close tomorrow. Watch to see how they impact the tone of the day.

Investors are still focused on the horizon and questioning the direction as the cuts to stimulus continue, potential rate hikes loom, and potentially a slowing housing market in response to higher rates. All of the speculation is adding pressure to the markets as investor worries mount. As seen in the intraday chart above, investors lack confidence to drive the markets higher, even in a bounce of support.

The economic data continues to show modest growth as the Retail Sales climbed 1.1% for March and ex-autos were up 0.7% both beating expectations. Retails Sales (XRT) ETF moved to $82.20 before closing at $81 or even on the day. Even good news can’t offset the sellers at this point. This is all important information to hold on to… when the sellers relinquish control the components with the unrewarded good news will be the first to move off the current lows.

The leaders today were Energy up 1.3%, but held the $88.50 support. Technology (XLK) gained 1% and held $35.20 support. The NASDAQ 100 (QQQ) held $83.95 support and gained 0.8% on the day. The EAFE index (EFA) held the 50 DMA as support and closing up 0.5% today. There are areas worthy of watching, but we still have to be aware of the risk associated with the current market environment. The bias is on the downside. The move today was a bounce off the oversold support levels and nothing more for now. I still expect a sharp rally followed by more selling at this point. But, I am also willing to let the market validate what direction it will take on longer term. Remain both patient and disciplined.